Section 80C of the Income Tax Act enables individuals to claim deductions on taxable income for investments in specific instruments. Here are some commonly used instruments:
1. Unit Linked Insurance Plans (ULIPs):These products are a combination of insurance and investment. They are among the only market linked investment products that come under the Exempt-Exempt-Exempt income tax regime. There is no maximum investment limit, although underwriting would play its due role. Returns vary depending on the type of fund chosen. Insurance companies typically offer a basket of funds to choose from with varying levels of equity exposure. Returns of 4-8% are typically seen.
2. ELSS:These are mutual funds formulated to provide double benefits of tax saving and high ROI (return on investment). These investments can help in saving tax upto ₹46,800.
3. Tax-saving Fixed Deposits:Putting your money in fixed deposits (FDs) can provide steady income with relatively lower risk. The rate of interest typically varies between 5.5%-7.75%. There is typically a 5 year lock-in period for tax-saving FDs, and the maximum amount that can be saved is ₹10000.
4. Public Provident Fund (PPF):A resident Indian can start a PPF account. He may be a salaried or non-salaried individual. It has a 15 year lock-in period. The current interest is 8% p.a. which is not taxable. ₹500 is the minimum limit of investment, while ₹1.5 lakh is the maximum. Interest is added each month and compounded, i.e., each month’s interest will be calculated on the sum accumulated by the 5th of the month.
5. Employee Provident Fund (EPF):Anyone can start an EPF account with a basic salary of more than ₹15,000 per month. The interest rate is 8.55% p.a, and interest is compounded like that of PPF. If withdrawn after 5 years of continuous service, the complete PF balance + interest is exempted from tax.
6. National Pension Scheme:Any citizen aged between 18 to 60 can create an NPS account. The typical interest rate is in the 8% region. There is no maximum limit on investment. The exemption can be availed for investments upto ₹1.5 lakh.
7. Sukanya Samriddhi Yojana: Parents or guardians of a girl child can start an account under her name till she turns age 10. The investment amount is capped at ₹1,50,000 for one year and is entirely tax-free. Maturity amount and withdrawals are exempted from tax. The interest rate is 8.5% and is tax-free as well.
8. Premium for Life Insurance:Life insurance premium payment for the taxpayer and their family is eligible for deduction under section 80C. This is the case only if premium is less than 10 percent of the sum assured (the amount promised at the death of the policyholder)
9. Children’s tuition fees:Tuition fees of upto ₹1.5 lakhs are deductible for upto two children per parent, which means that a couple can avail it for a total of 4 children. This can be applicable to tuition fees paid for any educational institutions in India.